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I recently attended an entrepreneurship panel hosted by law firm Orrick, Herrington & Sutcliffe LLP titled, 10 Startup Mistakes to Avoid. The discussion was moderated by Orrick Partner David Concannon, whom we work with extensively at Selerity, and featured a great lineup of entrepreneurs and venture capitalists (VCs), including:

Although the panel discussed a number of startup mistakes, I want to highlight those that I feel are the most insightful. I will admit that after hearing the executives speak, it reinforced my opinion that doing things right the first time around is imperative when starting a business. Everything from not formalizing your legal structure early on, to pricing options without a 409A, to making bad co-founder decisions, can create significant issues for a company down the road. Fortunately, I was lucky enough to be able to lean on great counsel from Concannon and the rest of my board, however, I still wish I had this list when setting out to launch Selerity. Without having gone through the process of starting a company, many of these mistakes are not obvious to first time entrepreneurs. I’ve included a link to Orrick’s Startup Tool Kit¸ a thorough resource for legal document templates and other insights related to the items discussed below.

Co-founder and investor chemistry – Barnes of First Round Capital hit the nail on the head when he said entrepreneurs only get to really pick three things: their concept, their team, and their investors. Getting all three right can be critical to success. Every startup goes through ups and many more downs. When times are tough, the chemistry among investors and founders is the bond that allows you to continue to press forward and endure. Barnes and Tisch had some great advice for entrepreneurs who are vetting investors: ask the VC the last three companies they removed from their website and why. They also suggested interviewing a handful of CEOs from companies they invested in that failed. When things are going well, life is easy. When things are falling apart, you see people’s true colors.

Lack of formal legal agreements among co-founders – Minshew of the Daily Muse offered thoughtful insights she learned from a negative experience at her first startup, where co-founder agreements weren’t formalized and, as a result, could only be enforced by going to court. The documents among co-founders that outline crucial business points, such as employment terms, equity, etc., need to be formal legal documents. If you use notebook paper and layman’s terms, expect to go to trial to get them enforced. Legal battles are the last thing you need to be spending your time on when starting a company.

Not making co-founder equity vest – Co-founders should agree to have their equity in the venture vest over time, typically for three to four years. If you have a falling out with your partner and separate, you’re left in a situation where you’re doing all the work but your former partner still owns a material percentage of the company. Having co-founder equity vest over time is a good way to avoid this.

Not incorporating early enough – There are various benefits to be gained from making your company a legal entity early on, including IP ownership, separation of assets, equity related issues, etc. Given how easy and inexpensive it is to setup a corporation, you should do so with your business very early on. It forces you to address important decisions such as division of equity. Orrick has a helpful questionnaire that will guide you through picking the proper legal entity.

Not having proprietary invention and confidentiality agreements with all employees and contractors – Before a piece of code is written, architecture drafted, logo designed, or any other work performed by an employee or contractor for your company, you must have the proper intellectual property (IP) agreements in place. Without them, the legal owner of the work is the creator, not the company. This also applies to confidentiality. Anyone working for you should be required to keep company information strictly confidential. Check out this template for an IP & confidentiality agreement from Orrick.

Pricing options without a valid 409A valuation – 409A valuations are used to help companies set the strike price of stock options, which must be at or above fair market value. If the strike price attached to an employee stock option isn’t supported by a 409A valuation, the recipient is personally liable for various potential penalties from the IRS. Keep in mind, 409A valuations are only valid for 12 months. Also, if you have a material event that impacts valuation, such as a new round of financing, the 409A valuation will have to be updated to remain valid.

Hiring too quickly, firing too slowly – It’s hard to maintain the quality of your staff when you ramp up too fast. On the flipside, as soon as you feel it’s time to let someone go, it’s always best to move quickly. Firing someone is one of the worst parts of running a business, but if the person isn’t the right fit, it is better for them and your company if you part ways swiftly.

Lack of focus – Be world class in one thing. It’s so easy to spread yourself too thin when running a growth venture. I deal with this everyday as an entrepreneur. You have to get good at saying “no” to new product features, markets, and ideas that aren’t core to your business. Be world class in one niche and then replicate that success in adjacent niches.

Waiting until your product is “perfect” – There is always a temptation to wait until your product has all of the bells and whistles you’ve envisioned before putting it into the hands of the end-user. Don’t make this mistake. It’s far better to get your product to market early and then iterate often. A great way to avoid issues that may come with releasing a product too early to the general marketplace is to create a beta group of “friendly customers” – we do this at Selerity. Identify a small group of clients you know are comfortable testing early stage products and then let them play around with your prototype. With that said, make sure you set their expectations in the beginning of this process, as well as stress the early nature and stages of the beta product. Also remember, the sooner you get your product into the hands of customers, the faster you start generating revenue.

Spending too much money – Overspending is the kiss of death for a new business. Morgan, formerly of Buddy Media, talked about companies entering into long-term capital commitments, such as office space, long-term hosting agreements, or some other large, long-duration contract that can sink growing businesses. Your number one job as CEO is to not run out of money.